Mortgage Applications Rise As Housing Inventory Decreases

The recent low rates have sparked additional interest in financing as mortgage applications rose 8.5% last week. Housing inventory declined in 27 major metropolitan areas at the end of November. More mortgage applications suggests increasing demand for homes, and less homes listed for sale indicates less supply. If sustained, these two combined forces of demand up and supply down, coupled with the incentive of the homebuyer tax credit, could spark recovery in the housing sector.

The decline in housing inventory across major metropolitan areas is more pronounced than in years past, reports real-estate brokerage firm ZipRealty Inc, going down an average 2.4% compared to the average change of 1.8% in the past 25 years. Major urban centers like Orange County in California, the San Francisco Bay Area, Washington D.C, Chicago, and Austin all showed a 2-8% decline in inventory.

These numbers indicate that fewer homes on the market may spur homebuyer demand, with the help of the extension of the federal homebuyer incentive that knocks off $8,000 off a home’s price tag for some new homebuyers, and $6,500 for existing homeowners looking to purchase a new home. However, analysts warn that with the current number of households behind on mortgage payments or in the foreclosure process, a large number of homes are expected to saturate the market early in the new year.

However, there are also signs of homebuyers on the hunt. Applications for home loans surged 8.5% while applications for home purchases were up 4%, both on a seasonally adjusted basis. Refinance applications rose to an unadjusted 11.1% due to mortgage rates that have lingered below 5%, near-record low territory . Currently, 30 year fixed mortgage rate is 4.97% 15 year fixed mortgage rate is 4.55%, and 5/1 ARM is at 4.15%, reports Bankrate.com.

Significant change is expected in 2010, when the Federal Reserve is scheduled to end its purchase of mortgage-backed securities that has kept rates low for much of 2009 as well as the federal homebuyer’s tax credit expiring on April 30. Many consumers may be waiting for signs of a stronger market before selling their home or buying a new one, which may also increase housing inventory next year. Keep up with our Friday round-up for the latest housing market news, advice, and mortgage rate updates.

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